Apple: Piper Ups Target to $910; First Trillion-Dollar Stock?

By Tiernan Ray

After Brian White with Topeka Securitiesyesterday set a $1,001 price target on the stock, Piper Jaffray’s Gene Munster this morning raised his price target from $718 to $910, writing that it’s possible the stock could go to $1,000 or more a share, with upside from an television set, at some point.

The $910 price target is a 12-month target, as is the case with most analyst targets. But, writes Munster, “We believe shares of AAPL will reach $1,000 in CY14, which would imply a roughly 1 trillion dollar market cap, the first in history.”

(Apple had 941.6 million shares outstanding at the end of the December fiscal Q1.)

Munster’s target is based on a 14 times P/E multiple of his calendar 2014 EPS estimate of $65.04. That’s not including Apple’s projected cash per share at that point. (Munster does not offer an estimate.)

“While some investors believe the biggest issue for AAPL to get to $1,000 is the market cap along with excessive investor exuberance, which we address in this note, we believe the real story is earnings growth,” he adds.

Irrational exuberance is “not a problem” for the stock, writes Munster, because it’s cheap.

As far as where the next $400 billion in market cap might come from, he observes that dollars invested in U.S. tech companies could rise 5% per year over the next three years. Apple, he thinks, can capture half that market cap increase, down from 84% of the capitalization increase in the last four years.

Income funds coming into the stock might make up some of that increase, but only a little bit, perhaps 5% to 10%.

The real swelling of Apple’s capitalization would be share shift in investment from you-know-who:

Second, the companies we consider to be the 10 most relevant competitors to Apple (Samsung, HTC, RIMM, NOK, SNE, DELL, HP, MSFT, INTC, GOOG) represent nearly $1 trillion in market cap today. We believe 20% of that value, or ~$200 billion could shift to Apple through 2014. Thus there is potential for Apple to repeat history and add another $400 billion to its market cap. At a $1,000 share price (roughly $1 trillion in market cap) Apple would represent 26% of the total US tech market cap from 17% today.

As to what Apple will earn to justify all that, Munster sees the company increasing smartphone share and maintaining tablet computer share:

For CY12, we expect $44.76 in EPS, 27% y/y growth. For CY15, we expect $80.18, 23% y/y. The most important market is the smartphone market, where we estimate Apple had 19% share last year, which we expect to go to 33% in CY15, with ASP’s going from ~$580 in CY11 to an estimated ~$435 in CY15. Moving forward, we believe the smarpthone market is boiling down to essentially two players at scale: Apple and Samsung […] ltimate shift of the third generation iPad to a $399 price point in CY13 after the fourth generation iPad is released should enable the company to sell a tablet with a retina-display screen for under $400. Second, we believe that Apple will launch an iPad with a smaller screen at a sub-$300 price point. Given our iPad sales assumptions, we believe that Apple will have 60% tablet market share in CY13 from 64% in CY12. We believe Apple will have 55% market share in CY14 and 60% share in CY15. The reason we expect growth/share to accelerate in CY15 is that we believe the iPad will become more widespread as both an enterprise and education device.

Munster adds that Apple could add $4 per share to his 2015 estimate of roughly $80 in net profit through a television set, though he’s not formally modeling that at this point.

Using a 14 times multiple of $84 would put the stock above $1,000, he writes. Specifically, $1,176.

Prior to White’s note, and Munster’s today, there had been some “soft” targets, if you will, from analysts, such as UBS’s Ittai Kidron’s mention of a $900 hypothetical valuation back on March 23rd, and Morgan Stanley’s Katy Huberty‘s “bull case” scenario for $960 per share back on March 14th.

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APRIL 3, 2012 9:25 A.M.

Tony wrote:

Don't be fooled by irrational optimism. Any business has ups and downs and the biggest may still disappear from the radar down on the road. How many companies that were like kingdoms 60 years ago have gone down the ditch, Sears, Kmart, Lehman, Nortel, GM, Kodak..... One day, it will be Apply's turn. It is not if, but when.

APRIL 3, 2012 9:26 A.M.

Tony wrote:

Don't be fooled by irrational optimism. Any business has ups and downs and the biggest may still disappear from the radar down on the road. How many companies that were like kingdoms 60 years ago have gone down the ditch, Sears, Kmart, Lehman, Nortel, GM, Kodak..... One day, it will be Apply's turn. It is not if, but when. Everything has its time of demise.

APRIL 3, 2012 9:47 A.M.

Pod wrote:

what this "analyst" ignores is the durability of margins and revenue per unit, combined with the fact that the duration of equities is pushing 50 years at present interest rates.
In short, these "analysts" are clueless story tellers.

APRIL 3, 2012 10:07 A.M.

Argh Finley. What are you doing. wrote:

Me, man. Fin.

Thee stock hit $631.29.

What do you think of them's potatoes. Aye?!

J.J.

APRIL 3, 2012 10:21 A.M.

@ Tony wrote:

You forgot to add RIM to your list of really big losers.

As for Apple's not if, but when.

Dude.

Or do you prefer to be called Tony?

What ever happened to rational optimism? Hmm. Such an animal exists. I've seen them. And your list of companies was never really loved inside and out. Big diff. For some. Love never ends. That's pretty simple to admit when making the best. Why does that have to end? Or how?

Lay on my couch. Explain. Or you can tell me about your mother first.

APRIL 3, 2012 10:22 A.M.

Spaceage wrote:

Awesome watching all the doomsayers EAT CROW on this one! Cue the "it's a bubble" morons, "Apple's products are overpriced for a recession" simpletons, and last but not least the "the other guys are going to come up with the better stuff for less" twits...it's a party in here on this one. Too bad the same analytical "geniuses" didn't see any of this coming until it already happened.

APRIL 3, 2012 1:09 P.M.

Anonymous wrote:

RIM is down 8% today. And Fusion was released.

He also said RIM would go out of business.

APRIL 3, 2012 3:42 P.M.

smith wrote:

Apple has great growth potentals.
Just to mention a few items:
1. Apple is planning to open 15 more stores in China .. .
2. Rumored contract negotiation with China Mobile that had over 600 million subscribers, that is twice the total populations of US.
3, Foxxcone, Apple's major supplier, is planning to invest US 120 millions over 3 years in Brazil , to assemble Iphone.ipad and other Apple products to sell locally. Brazil had very high import duty on electronic goods.Arik had mentioned in his article that Brazil IT spending will be 326 billions, half in professional sector, the other half for consumers. The iphone and ipad parts had already arrived in Brazil, just waiting for the last governmental green light to proceed
4. Apple is also looking into car audio.
When one look at all these situations
$ 1001 for Apple would not be too far away

APRIL 3, 2012 3:54 P.M.

Anonymous wrote:

the trend is most definitely up and I'm happy with my profits. But -- I'm also selling calls as a hedge.
We're approaching Bubble time, folks.

APRIL 3, 2012 4:19 P.M.

Bill wrote:

Only one that has a clue on Apple. Tired
of hearing the jokers on Cnbc continue
to bash and short Apple!

APRIL 3, 2012 4:57 P.M.

Whatever wrote:

"Bubble time?" this is hardly a bubble. Utter nonsense.

APRIL 3, 2012 4:59 P.M.

Whatever wrote:

@Bill, aren't you the one that was calling Cook a horrible CEO? What do you think of him now???

APRIL 3, 2012 11:16 P.M.

grbbiker wrote:

unless there is something suspicious about earnings, and i hear nothing causing me concern about their accounting, i'm keeping mine and relying on the reasonable peg ratio and knockout cash flows. i only wish i had 100 shares to write options on, but then i'd want to pick very high strike prices with little return, just to be safe about not losing my stock. i've lost baidu and other winners in the past from being too shortsighted.

APRIL 3, 2012 11:40 P.M.

@Tony wrote:

One day, Apple will reach $1 trillion valuation. It is not if, but when.

APRIL 4, 2012 7:25 A.M.

ATTENTION FOLKS: SPECIAL ANNOUNCEMENT!! wrote:

RBC's analyst Mike Abramsky announced that he is resigning. And although he would like to stick with tech, he's had it being an analyst.

FINITO.

APRIL 4, 2012 9:21 A.M.

ade wrote:

The insanity of the speculative markets continue to be cheered by deceptive advocates who have made fortune but don’t acknowledge the actually cost to the United States future which is likely to see a declining of standards of living for years to come. This is all done for a cause, so that a handful of people can make their billions by manipulating the stock market to show an illusion of prosperity returning to the economy.

Just look at the increase in money supply, the FED is handed out money like candy. That is, if you happen to have the right circle of friends. It obvious the institutional investors are in the Right Circle. Just look at the insane price of apple stock if you need proof. The fundamental do not support its stock price or its capitalization which has seen a 254 billon dollar increase within the last year and now is 576 billion, plus or minus a few billion here and there.

IT LIKE CANDY, THAT’S IF YOU DON’T ACTUALLY HAVE TO EARN IT.

If apple stock price continues to increase, don’t jump for joy. The continually rise is it share price is just an example of the herd investing as there are no other alternative. Apple stock price has nothing to do with fundamentals and can be attributed to the manipulation by institutional investors which have created another bubble.

As long as the herd believes the fairytales in regards to apple growth and income potential the stock will increase. As soon is its net income and growth do not meet the ridiculous expectations it will drop.
FACTS or FACTS.
Apples net income will stagnate. It is likely apples net income will not exceed 40 billion in 2012. Apples 2011 income was approximately 26 billion. A 14 billion increase in net income is a significant change and its not likely to happen. How much additional gross income does it required to realize 14 billion. In addition every additional billion of net income will be more difficult to earn.
By comparison NASA Space Shuttle operating budget in it last year was 3 billion. I provide this to illustration, to give the cheerleaders a clued about the staggering amount of income apple currently has.
14 billions buys quite a few Ipads, downloads and other apple products. In addition, the more affluent markets have been saturated with apple products, leaving the less capable markets the task of buying all though millions of products which are forecast to be manufactured and sold by apple in the coming years.
Apple net income is rarely mentioned. Apples net income from the past five years, from 2007 to 2011 is approximately 56.5 billion. A major jump in sale and income came in 2010 to 2011 when its net income increased by 11.91 billion.
Apple Net income
2007 3.50 billion Net Income growth
2008 4.83 billion 38.27 %
2009 8.24 billion 70.36%
2010 14.01 billion 70.16%
2011 25.92 billon 84.99%
What is never asked is how a company with a net income of 25.92 billion in 2011 can have achieved capitalization of 565.9 billion, maybe though speculation. Could that be possible?
It is relatively easy to determine apple value utilizing its net income and a capitalization rate. Apple average net income over the last 5 years is 11.3 billion. This income average would typically be utilized to estimate a value. But let use an unlikely scenario that Apple net income in 2012 is 40 billion. If a generous capitalization rate of 10% is used Apple’s value can be estimated by:

40 billion / 10% = 400 billion.

But to entertain all the promoter of apple stock let utilize a capitalization rate of 6%

40 billion / 6% = 666 billion.
I did not calculate that number on purpose. However it is interest. Maybe, apple stock price is associated with one of the deadly sins – GREED. It certainly appears to be.

Apple’s unsustainable income growth is beginning to slow, but this does not stop its promoters from developing deceptive forecast about Apples future growth citing its relatively low market share of worldwide computer, Smartphone and Tablet sales.
One must ask who is paying these analysts for these deceptive forecasts. Could it be the herd on Wall Street which severely damaged the US Economy by all the financial instruments which were developed, supposably to limit risk, but were merely another device which allows them to hedge their bets. This explain why, brokers, traders and hedge mangers can’t make an honest living without having rigged the system in their favor of coarse.

I am not surprised that the 70% of Apple’s stock is owned by institutional investors which have created another bubble as there are limited investment alternatives. Apple stock was primed for this collusion, due to it past growth and the difficulty in evaluating its most important characteristic which is the marketing of its products.

This is an intangible asset, akin to Goodwill which is very difficult to evaluate There is a reason, Apple’s sales are less than its competitor and that is due to their products considerably higher cost, which in many cases are functionality no better than their competitors.

I remember my first computer cost over S2500. Today, a superior system can be bought for less than $400. This is directly related to Apple’s value and alleged income growth potential. Just as computers, big screen TVs and many other electronic devices have been commoditized, so will apple products if they wish to capture more share of market sales.

It is not surprising that apple now is offering a dividend and is buying back its stock so that it can keep the stock price artificially high. But why are they waiting till September to begin the buy back. Maybe, their analysts see a drop coming and can acquire more shares for the reported 100 billion buy back... You know Apple is very innovative.

It may be possible for Apple's stock price to maintain this level for a period time, but not likely as its price has been inflated by Speculators that created another Bubble which will eventually hurt the uninformed and possible many retirement funds.

My analysis indicates Apple's current capitalization is overvalued by approximately 200 billion. My advice is to sell apple stock now as it current capitalization is based on intangible asset, and improbable income growth rates. For all the individual investors that have recently purchased Apple stock due to deceptive conjecture, my condolence Apple may be able to increase their market share of sale, but at what cost, lower net profit which will affect its bottom line, profit and value as a company.

I know my comment will probably fall on deaf ears, but at least I made an effort to bring another perceptive on Apple’s irrational stock price. The question is when will the herd will open their eyes and hold the institutional investor accountable for this insane speculation.

APRIL 4, 2012 10:53 A.M.

Whatever wrote:

@ade, blah-blah-blah. See you at 1,000!

APRIL 5, 2012 11:46 A.M.

Rick wrote:

Ade,

Do yourself a favor and reread the article from a rational point of view, not from I missed the boat and now hate Apple. The facts are the facts! Apple has a track record comparable to none, thus they have done quite well up to now and seem to have much going for them. Tablet sales are strong and just got stronger with the new Ipad, Ihone, Mac, Itunes. et all continue to grow significantly, Ipod has hit saturation and is in decline. Throw in new Iphone and new TV deal they have with Sharp and Foxcon and that will be next major growth area. Throw in Smartphone sales around the world and you should easily see that Apple has many good quarters ahead of them. Fight all you want, but I don't see issues with getting to $1000/share.

APRIL 7, 2012 2:42 A.M.

Richard wrote:

Apple is good, but PetroChina was the first $ trillion company when it IPO in 2007.

APRIL 8, 2012 8:59 A.M.

Anonymous wrote:

This stock, AAPL is going to cream $1000. No problem. Do yourself a big favor. Buy it. And stop watching it and come back in a year.

As for the naysayers. Let me go back and look at the other comments. I keep forgetting what the naysayers say. They're never right. They generally don't use the products etc. Right. There's Tony. Kodak went out of business blah blah blah. Nortel went out of business blah blah blah. So Apple is going out of business blah blah blah.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.